Oil price set to rise as fiscal cliff postponed, Iran threatens Hormuz, Bernanke has no QE exit

Dec. 27, 2012 - PRLog -- President Obama cut short his Hawaiian holiday for fiscal cliff negotiations. Congress will reconvene. It is assumed by many, a temporary agreement will be made, and the fiscal cliff will be kicked down the road. Neither party is seriously dealing with unfunded entitlement reform, and trillion dollar deficits apparently will become the norm. Bernanke seems willing to monetize the debt with quantitative easing, and the purchase of long term debt, with no real exit strategy. This will debase the dollar and raise the price of crude oil.

Sanctions have cut Iran’s 2012 oil exports by approximately half of their 2011 exports. Iran remains largely an under-developed poverty-stricken nation ruled by ruthless theocrats. Since its non-competitive workforce is not a suitable tax base, the Iran government has to rely almost exclusively on oil revenues to finance its police, army, hospitals and institutions. Iran will continue to use military maneuvers and threats to close the Strait of Hormuz to raise the price of crude to off-set lost revenues, and push back against a pending Israel attack on Iran’s nuclear facilities.

A leaked report by the International Atomic Energy Agency (IAEA) said there were 2,784 centrifuges at Fordo, and that Iran could soon double the number in operation from 700 to 1,400. The facility at Fordo, which is buried deep under a mountain inside a military base near the holy city of Qom, could enrich 20% uranium to 90%, weapons-grade, in a relatively short time. Depending on how many more centrifuges it activates, it could quickly upgrade existing uranium and reach 140 kilograms (about 300 pounds) needed for at least one warhead. Tehran “should be in a position to produce enough material for two or three” nuclear warheads by the summer, if it decides to double output in the next few weeks, said Olli Heinonen, a former IAEA inspector in Iran.

Israeli Prime Minister Benjamin Netanyahu has placed Iran at the top of his re-election campaign, pledging to halt Tehran’s nuclear program. Polls predict Netanyahu’s Likud party, which is running on a joint list with the ultranationalist Yisrael Beitenu faction of former foreign minister Avigdor Lieberman, will be successful, and Netanyahu will be re-elected as Israel Prime Minister, and will consolidate his position. At a speech before the UN’s General Assembly in September, Netanyahu warned that if Iran continued work at the current pace, it could have the necessary material for a first bomb by the summer of 2013. He drew a red line and stated Israel would not allow Iran to accumulate enriched nuclear materials to build a nuclear bomb.

If Iran blocks the Strait of Hormuz the price of crude oil will rise. This is the world’s most important oil chokepoint due to its daily oil flow. At its narrowest point, the strait is 21 miles wide, but the deep water shipping lane is two miles wide in either direction, separated by a two-mile buffer zone. 14 crude oil tankers a day, carrying 17 million barrels, pass through the strait carrying 20 per cent of the world’s traded oil.

Iran controls three fortified islands, Aba Musa, Lesser Tumb and Greater Tumb, which could be used as a base for helicopter, gunboat and anti-ship cruse missile attacks. Some military experts refer to these Islands, at the entrance of the Strait of Hormuz, as Iran’s three aircraft carriers. They are unsinkable, and will require boots on the ground to neutralize. Iran holds the high ground in the Persian Gulf. Iran missile batteries arrayed in the mountains could raise havoc with the U.S. navy’s Fifth Fleet assigned to police the Persian Gulf.

One of Iran’s most dangerous missiles is the Russian made Sunburn anti-ship cruse missile which can approach a target at Mach 2.2 speed. Iran has a stock pile of Exocet, Sunburn and the more advanced Yahhont missiles. Iran can fire missiles from submarines, speedboats, trucks, fishing boats, or unmanned drones. Iran has a high-speed underwater torpedo with an underwater speed of 223 mph. 　

The standard US Navy Phalanx anti-missile defense system is too slow to effectively engage the Sunburn anti-ship missile. The Navy is upgrading its anti-missile system with the Raytheon SeaRam anti-ship missile defense system. The RAM missile itself is a mach 2, second generation derivative of the Sidewinder and Stinger missiles. It has tested a 95% kill rate against incoming missiles. However, it only takes one cruise missile to do serious damage to an aircraft carrier. Also the RAM can track multiple targets, and can fire multiple missiles, but only at a single target. Each RAM platform holds 11 RAM missiles. The RAM system can become overcome by a large number of simultaneous targets, such as a fleet of Iranian speedboats with anti-ship missiles. Once the 11 missiles are discharged the RAM has no immediate reload. It is presumed the Russians can provide Iran with Sunburn or Yakhont missiles faster than the U.S. can build $3.5 billion Nimitz Class nuclear-powered aircraft carriers. The Russian Sunburn missile may be the nemesis to the US Navy, the way the Stinger shoulder-launched anti-aircraft missile was to the Russians in Afghanistan in the 1980’s.

The US or Israel can presumably take out Iran’s current nuclear enrichment centrifuges. However, if Iran closes the Strait of Hormuz, it will be difficult for the U.S. to keep the chokepoint open without boots on the ground. A land war in mountainous Iran will be a long and slippery slope. Iran has almost three times the land mass of Iraq, and has enough Russian missile systems to make it difficult for U.S. supply vessels.

“…If you diligently obey the voice of the Lord your God, to observe carefully all His commandments which I command you today, the Lord your God will set you high above all nations of the earth. But it shall come to pass, if you do not obey the voice of the Lord your God to observe carefully all His commandments and his statutes which I command you today that all these curses will come upon you and overtake you. The Lord will cause you to be defeated before your enemies…” Deuteronomy 28:1,15,25

It appears the price of crude oil will increase in 2013.
　

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